The general public, including shareholders, is increasingly interested in executive pay details.
Suncor's pay for performance compensation philosophy is designed to support our long-term growth strategy by aligning executive compensation with shareholder interests.
Compensation plans and practices are linked to our strategic business objectives, with a significant portion of the total compensation of our senior executives provided in at-risk, incentive-based pay, designed to reward superior business performance and increasing shareholder returns. This is a fundamental part of our organization’s identity.
Our pay for performance philosophy is demonstrated in the mix and focus of compensation provided to executives. Incentive-based pay is designed to reinforce and reward successful short, medium and long-term performance in key business areas such as safety, environmental excellence and sustainability, cash flow, and operating reliability, all which enable the performance results important to our shareholders. The company’s goal translation process begins with the Chief Executive Officer and cascades through the organization with key goals within each of the four focus areas of our operational excellence strategy.
The merger in 2009 of Suncor and Petro-Canada created the largest energy company in Canada and one of the largest energy companies in North America by market capitalization. The merged Suncor is a Canadian energy leader with the assets, cost structure and financial base to compete globally and creates a solid foundation for developing future shareholder value.
While Suncor and Petro-Canada shared a similar ‘‘pay for performance’’ compensation philosophy with strong governance and risk management principles integral to their executive compensation structure, there were differences in compensation systems. With the merger completed, Suncor — under the oversight of the Human Resources & Compensation Committee of the Board (“HR&CC”) - is aligning and strengthening performance-based compensation structures.
Suncor's HR&CC regularly assesses our executive compensation plans and practices to ensure they are competitive, take into account external market trends and support the company's long-term growth strategies.
In 2009, economic and market conditions prompted the following changes to Suncor's compensation plans and practices.
- The targeted award level of long-term equity-based incentives granted in 2009 was reduced to reflect the performance of the market and reinforce the alignment of executive compensation with shareholder interests.
- Salary increases were also delayed for all legacy Suncor employees in response to the economic downturn. A salary adjustment was made in the fourth quarter after consideration of competitive data and improved economic conditions.
- The annual incentive plan was redesigned, effective August 1, 2009, to reflect a more market-typical design. This resulted in a simpler design while retaining the strong emphasis on performance at the corporate, business unit and individual level and further strengthening the link to pay for performance.
For 2010, the HR&CC took the following decisions in governance of Suncor’s compensation plans and practices:
- Introduced a minimum performance threshold for the corporate cash flow measure. The minimum threshold level must be achieved before a payout under the annual incentive plan can be made. This change will ensure annual incentive payouts are realized only when cash flow is a significant contributor to business results.
- Changed the peer group for determining market-competitive compensation for our top twelve executive officers. To better reflect Suncor’s new size and scope of operations and the market in which we compete for talent, we have moved from a group of large Canadian energy companies (of which Suncor is now the largest) to a group of North American energy companies.
- Increased the share ownership guidelines for the CEO, Chief Operating Officer (‘‘COO’’) and executive vice-president levels to better align with our new North American peer group.
- Decided to introduce a ‘‘Say on Pay’’ advisory vote in 2011. Suncor received a shareholder proposal from SHARE, on behalf of Meritas Mutual Funds, which was subsequently withdrawn as we agreed to place before our shareholders at our 2011 annual meeting of shareholders, an advisory vote on our approach to executive compensation.
Download the 2010 Management Proxy Circular (PDF, 64 pp., 1,725 KB) for more information on executive compensation.